(5) Income Taxes

The items comprising income tax expense are as follows (in thousands):

	Year ended December 31,
	2012		2011		2010
Current — Federal	$	8,934	$	9,973	$	9,916
— State		1,050		880		831
		9,984		10,853		10,747

Deferred — Federal		1,363		2,372		293
— State		99		212		(4	)
		1,462		2,584		289
Total income tax expense	$	11,446	$	13,437	$	11,036

Temporary differences and carryforwards which have given rise to deferred income tax assets and liabilities as of December 31, 2012 and 2011 are as follows (in thousands):

	2012		2011
Deferred tax assets:
Benefit plans	$	1,099	$	1,021
Inventories		536		506
Other		38		206
Total deferred tax assets	$	1,673	$	1,733
Deferred tax liabilities:
Property, plant and equipment	$	10,299	$	9,147
Patents and goodwill		2,972		2,719
Other		11		14
Total deferred tax liabilities	$	13,282	$	11,880

Net deferred tax liability	$	11,609	$	10,147

Balance Sheet classification:
Non-current deferred income tax liability	$	12,232	$	10,902
Current deferred income tax asset		623		755
Net deferred tax liability	$	11,609	$	10,147

Total income tax expense differs from the amount that would be provided by applying the statutory federal income tax rate to pretax earnings as illustrated below (in thousands):

	Year ended December 31,
	2012			2011			2010
Income tax expense at the statutory federal income tax rate	$	12,276		$	13,816		$	11,196
Increase (decrease) resulting from:
State income taxes		747			710			538
Section 199 manufacturing deduction		(949	)		(996	)		(957	)
Other, net		(628	)		(93	)		259
Total income tax expense	$	11,446		$	13,437		$	11,036

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits as required by ASC 740 is as follows (in thousands):

Gross unrecognized tax benefits at January 1, 2010	$	1,165
Decreases in tax positions for prior years		(14	)
Increases in tax positions for current year		322
Lapse in statute of limitations		(53	)
Gross unrecognized tax benefits at December 31, 2010	$	1,420
Decreases in tax positions for prior years		(77	)
Increases in tax positions for current year		134
Lapse in statute of limitations		(216	)
Gross unrecognized tax benefits at December 31, 2011	$	1,261
Increase in tax positions for prior years		19
Increase in tax positions for current year		0
Decrease due to settlement with taxing authorities		(641	)
Lapse in statute of limitations		(98	)
Gross unrecognized tax benefits at December 31, 2012	$	541

As of December 31, 2012 all of the unrecognized tax benefits, which were comprised of uncertain tax positions, would impact the effective tax rate if recognized. Unrecognized tax benefits that are affected by statutes of limitation that expire within the next 12 months are immaterial.

We are subject to United States federal income tax as well as to income tax of multiple state jurisdictions. We have concluded all United States federal income tax matters for years through 2005. In January 2009, the Internal Revenue Service (“IRS”) began examining certain of our United States federal income tax returns for 2006, 2007 and 2008. This audit was favorably concluded in the third quarter of 2012 when the IRS appeals group allowed 100% of the tax credits claimed for our research and development during those years. Our unrecognized tax benefits were reduced at that time on the basis of this favorable settlement in the amount of approximately $641,000. All material state and local income tax matters have been concluded for years through 2008.

We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The liability for unrecognized tax benefits included accrued interest of $26,000, $77,000 and $84,000 at December 31, 2012, 2011 and 2010, respectively. Tax expense for the year ended December 31, 2012 and 2011 included a net interest benefit of $51,000 and $7,000, respectively. Tax expense for the year ended December 31, 2010 included net interest expense of $23,000.